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Samsung Heavy Industries Pvt. Ltd. Versus ACIT, Circle-3, Noida

2018 (1) TMI 388 - ITAT DELHI

TPA - international transaction of the assessee pertaining to the provisions of EDS does not satisfy the arm’s length principle - comparable selection criteria - Held that:- Assessee is engaged in the business of providing engineering services, generating engineering drawings and providing other IT enabled services together referred to as “engineering related service” for offshore facilities. The primary business of SHI Korea encompasses shipbuilding, offshore floaters, digital devices for ships .....

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eferred to as the Act). 2. Following grounds have been raised in this appeal: 1. On the facts and in the circumstances of the case and in law, the assessment order passed by the Learned Assessing Officer ( Ld. AO ) is bad in law. 2. On the facts and in the circumstances of the case and in law, the learned Transfer Pricing Officer ('Ld. TPO') erred in giving effect to the directions of the Hon'ble DRP ('Ld. DRP') on findings which are erroneous in law, contrary to the facts an .....

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ons from the Hon'ble DRP erred in enhancing the income of the Appellant by INR 22,983,602 holding that the international transaction of the Appellant pertaining to provision of EDS does not satisfy the arm's length principle envisaged under the Act and in doing so have grossly erred in: 4.1. not appreciating that none of the conditions set out in section 92C(3) of the Act are satisfied in the present case; 4.2. disregarding the ALP as determined by the Appellant in the Transfer Pricing ( .....

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4.4. rejecting, without any cogent reasons, the quantitative screens/filters applied and set of comparables arrived at by the Appellant, following a detailed and robust search methodology carried out in the TP report, and proceeding to arrive at the fresh comparables set by applying certain arbitrarily selected filters and arriving at his own comparables set instead; 4.5. excluding certain comparable companies on arbitrary/frivolous grounds even though they are comparable to the Appellant in ter .....

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omparable in EDS of the Appellant; 4.9. disregarding the adjustment for capacity to the operating profit to total cost earned from the international transaction by the Appellant for the purpose of comparability; 4.10. denying a working capital adjustment to the operating profit margins of the comparables, and in doing so have grossly erred in concluding that the Appellant has not been able to demonstrate that the difference in the working capital deployed is making a difference in the margin ear .....

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71(l)(c) of the Act for concealment of particulars of income and for furnishing inaccurate particulars thereof. 6. The Ld. DRP has grossly erred on facts and in law by proposing to compute interest under sections 234A, 234B, and 234C of the Act mechanically and without recording any satisfactory reasons for the same. Further, the return of income has been filed duly on 29/11/2012; hence the interest under section 234A is not valid in law. The Appellant prays that appropriate relief be granted. T .....

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ppellant, in accordance with the law. 3. From the above grounds, it is gathered that only grievance of the assessee relates to the enhancement of income by ₹ 2,29,83,602/- by holding that the international transaction of the assessee pertaining to the provisions of EDS does not satisfy the arm s length principle envisaged under the Act. 4. Facts of the case in brief are that the assessee company was incorporated in India in June 2007 and is a wholly owned subsidiary of Samsung Heavy Indust .....

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ion Method used by Assessee Value of International transaction (INR) Outcome of TP order (Adjustment in INR 1. Provision of engineering design and related services Transactional Net Margin Method ( TNMM ) 389,421,515 43,262,688 2. Reimbursement of other expenses NA 872,474 Accepted to be at arm s length 5. The second international transaction was accepted to be at arm s length. However, for the first international transaction relating to provision of engineering design and related services valui .....

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lysis of the international transaction and proposed the adjustment by changing the set of comparables and computing their margin. The TPO rejected 3 comparables selected by the assessee and retained 4 in the final set of following 14 comparables: S. No. Company's Name Average OP/TC 1 Accentia Technologies Ltd. 11.95% 2 Acropetal Technologies Limited (Engineering Design Service) 18.30% 3 B N R Udyog Ltd. 40.62% 4 Cades Digitech Private Limited 1.52% 5 e4e Healthcare Services Private Limited 1 .....

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assessee did not demonstrate any need for working capital adjustment when the interest part was considered as non-operative. He also denied the benefit of risk adjustment. Finally, the TPO considered the average mark-up on cost of 20.39% as compared to 11.37% of the assessee and accordingly proposed an adjustment of ₹ 4,32,63,688/-. The AO passed the draft assessment order dated 18.03.2016 by making the adjustment of ₹ 4,32,63,688/-. Thereafter, the assessee filed the objection befor .....

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BNR Udyog Ltd., if it fails the RPT filter. The ld. DRP also held that the comparables namely, M/s CSS Tech and M/s TCE Consulting were rightly excluded by the TPO since those companies being domestic, had different FAR and also fails a valid filter. The ld. DRP also directed the TPO to verify as to whether the another comparable choosen by the assessee i.e. M/s Caliber Point Business Solutions Ltd. passes the said filter. On the direction of the ld. DRP, the TPO passed an order dated 29.11.201 .....

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(copy of the said order was furnished which is placed on record). 8. In his rival submissions, the ld. CIT Dr although supported the impugned order passed by the AO but could not controvert the aforesaid contention of the ld. Counsel for the assessee. 9. After considering the submissions of both the parties and perusing the material available on the record, it is noticed that the facts for the year under consideration are similar to the facts involved in ITA No. 436/Del/2016 for the assessment .....

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assified the assessee s services as IT enabled services. Once the TPO has treated the nature of services rendered by the assessee as I.T. enabled and the assessee has not objected to the same in the appeal before the Tribunal, the ld. DR cannot be allowed to set up a new case contrary to what was done by the TPO by claiming that the nature of services should be altered at this stage for evaluation of comparable companies in dispute. We will, therefore, confine ourselves in considering the compar .....

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with SHI Korea dated 1st February, 2009. Thus, it is ostensible that the nature of services rendered by the assessee during the year are similar to those rendered in the preceding assessment year i.e. 2010-11. The TPO in the preceding year, proceeded in almost the same manner, and considered all the four companies currently under challenge before us, as comparable. The matter travelled to the Tribunal and the same has been decided vide order dated 13.07.2017 in ITA No.576/Del/2015. A copy of suc .....

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amount of work. We have gone through a copy of the Annual report of this company for the year under consideration, whose copy has been placed on pages 500 onwards of the paper book. The Profit & Loss Account of this company is available at page 542 from which it can be seen that there is income from Sales and services to the tune of ₹ 108.31 crore. Schedule 8 gives a brief description of such Income as including Medical transcription, Billing and collections, Income from coding, Inter .....

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is not possible to bifurcate income from IT enabled services from the common pool of Products and services, so as to make comparison with the assessee s income. Respectfully following the Tribunal order passed for the immediately preceding year, we order for the exclusion of this company from the list of comparables. (ii) Eclerx Services Ltd. 12. The TPO included this company in the list of comparables on the same basis as was done for the preceding year. The Tribunal order for the immediately p .....

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m both these services has been clubbed. Such services include Trade processing support, Reference data maintenance, Contract risk review, Reconciliation and controls, Margin and exposure management, Metrics and reporting, Expenses management, Accounting and finance, Consulting services, Online operations & Web analytics, CRM & business intelligence, Data management & Reporting, Competitor benchmarking & Pricing, Quality & compliance and Business process consulting. This compa .....

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the preceding year. The Tribunal directed to exclude this company, inter alia, on account of difference in functional profile. 15. We have gone through the principal activities done by this company in the year in question which have been set out on page 88 of its Annual report as under:- 1. Background and principal activities TCS eserve Limited is engaged in the business of providing Information Technology-Enabled Services (ITES)/Business Process Outsourcing (BPO) services, primarily to Citigro .....

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e has also made available Annual report of this company for the immediately preceding assessment year. The principal activities of the company have been set out at page 105 of the Annual report for the preceding year, which are identical to those for the instant year. Since the Tribunal, for the immediately preceding year, has held this company to be functionally different from that of the assessee, respectfully following the precedent, we direct the exclusion of this company on account of funct .....

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ave been set out on page 25 of its Annual report for the year, which are as under:- 1. Background and principal activities TCS eserve International Limited is engaged in the business of providing Information Technology15 Enabled Services (ITES)/Business Process Outsourcing (BPO) services, primarily to Citigroup entities globally. The Company s operations broadly comprise of transaction processing and technical services. Transaction processing includes the broad spectrum of activities involving t .....

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